The Miseducation of America

Back in the ‘good ole days’ (which usually tend to have occurred exactly one hundred years before the phrase is uttered), doing business in America was simple. Entrepreneurs completed deals using only back of the envelope calculations and a firm handshake. They didn’t need any of those Wall Street wizards with their fancy forecasting and analysis methods. Big Government wasn’t looking over your shoulder or strangling you with red tape. You didn’t need a fancy college degree to make something of yourself. All you needed to achieve wealth were willingness to work hard and a spark of inventiveness.

A profile of the typical millionaire in the United States seems to confirm this narrative. Most millionaires, according to the seminal book, The Millionaire Next Door, didn’t make their money in some highly complex business. In fact, it was usually some ordinary business – say construction or dry cleaning – that vaulted them into the ranks of the wealthy. Although fairly educated – almost 80% have a college education – education was not the distinguishing factor that accounted for their wealth. Nor was it above average performance in the marketplace, inheritance, or even the type of profession they occupied. The single biggest factor among them was their propensity to save.

Wealthy people, on average, save a far higher percentage of their income than their non-wealthy counterparts. Some would argue that of course the wealthy save more, because they do not need as much of their income to cover living expenses as ordinary people. But the data refute this. The propensity to save is a precondition, not a result of wealth. On the other hand, in some professions which demand a higher ‘appearance’ of status – say doctors or lawyers – people tend to live at or above their means. They save a relatively small amount of their income, and have fewer investments in stock, real estate and other productive assets.